USD/JPY Stuck in Tight Range Despite Expected Interest Rate Hike
The USD/JPY pair has been stuck in a tight range for several sessions, unable to break above the 159.50 level despite a gradual grind higher.
Despite the intervention efforts by Tokyo and Washington in late July, which saw a record commitment of 8.45 trillion Yen followed by another 5.3 trillion, the market has largely taken back half of what was removed from the pair's value.
The reason for this is that the policy rate gap between Japan and the US remains significant, with Japan at 1.00% compared to the US target range of 3.50% to 3.75%, a difference of roughly two and a half percentage points.
This means that even if the Bank of Japan does raise interest rates in September as expected, it would still leave the carry intact, making the intervention's impact short-lived.